For a man supposedly under pressure, Chancellor Philip Hammond seemed remarkably jovial when delivering his Budget speech. The early part was littered with jokes and barbs aimed at the opposition, and Mr Hammond did not give the impression of a man supposedly in a no-win situation. There was much talk of preparing the country for the new, post-Brexit era, and an image of the government “running towards change” – an interesting image considering all of the talk of a possible cliff-edge Brexit.
In any event, Mr Hammond is putting another £3bn into the pot to prepare for Brexit contingencies – perhaps a drop in the ocean when you consider the sort of sums being spoken about as a possible divorce payment.
In truth, the Chancellor seemed intent on ensuring there were no missteps by keeping the number of substantive announcements to a minimum. Throughout a rather long speech, the sense was that there were a lot of spending commitments but few, if any, revenue-raising measures. The longer the speech went on, the more the expectation rose that here had to be a sting in the tail – but it never came.
This was all the more surprising in the context of significant reductions in growth expectations (which surely must mean lower tax revenues). Many of the revenue- raising measures that were predicted simply did not materialise. Income tax personal allowances rose, there was no cut in higher-rate tax relief for pension contributions and the VAT registration threshold remains unchanged at £85,000.
There were the usual raft of tax anti-avoidance and evasion measures (18 in total according, to the Budget papers) and there were measures to tax multi-national companies from channelling royalties from UK sales to low-tax offshore jurisdictions. Interestingly, online marketplaces such as eBay will, in future, be jointly responsible for VAT along with their sellers. We know HMRC is targeting those who trade through these marketplaces without declaring their income, but this is a new step, effectively looking to force the operators of these sites to police the VAT compliance of sellers.
Also in the small print, there will be consultations on the broadening of measures to tax personal service companies, potentially extending rules that currently only apply (not very effectively) to the private sector. The gig economy will be looked at as part of a review of employment status (much needed, in truth) and the taxation of trusts will be reviewed.
Diesel cars came in for a predictable hit with an increase in vehicle excise duty for all but the most modern of diesels and a one per cent rise in the benefit in kind on diesel cars. At the same time, there will be a significant investment in electric car charging infrastructure and those employees who charge their electric cars at work will not suffer benefit in kind tax on that. Given these cars are supposed to be as cheap as chips to charge, I am not sure how generous that move really is.
Paul Brown - Head of Tax Compliance
Disappointingly, there were no further reductions in the corporation tax rate, and the indexation allowance which increases the tax cost of assets held by companies in line with inflation will be frozen from January 2018. In one sense, the rule was a bit of an anachronism, but it means another relief for companies will disappear, leaving corporates facing higher taxes on capital gains in the future.
On the positive side of the ledger, there was little to warm the cockles of the hearts of SME owners as we head into winter. Further help on business rates is a plus, and more support for SME housebuilders would seem to be a positive move.
There was much focus on innovation, with £2.3bn being committed to R&D. I was briefly excited when there was mention of increasing the R&D tax credit, but it seems this will apply only to larger companies whose current scheme is much less generous than the scheme for SMEs.
There will also be a position paper to address how an old and creaking tax system deals with the digital economy – an area which has to date been well and truly placed into the “too hard” basket. Radical change is needed to make the global tax system fit for purpose in a digital age, and this is an opportunity for Britain to drive the agenda here.
Even the grand finale was something of less than a surprise. First-time house buyers will see Stamp Duty Land Tax abolished on homes up to £300,000, and on the first £300,000 on properties up to £500,000. While obviously welcome, the sort of savings we are talking about seem hardly likely to bring first-time buyers flooding back into the market. Of course, Scotland now has its own property transfer tax, so presumably these changes will not apply north of the border.
When I woke up this morning, my feeling was that this highlight of a tax person’s year was going to prove to be a bit of a damp squib, and I have to say that feeling has proved right. Given the spending committed seems to be significantly greater than additional tax revenues, the Budget does seem to represent a significant loosening in the government’s fiscal approach in the face of significant reductions in expected growth. Whether this is enough to pull Britain out of the economic slow lane remains to be seen – although it does feel like events away from the Budget may have a much greater effect than any of the measures announced by Mr Hammond today.
For a more detailed view on how the new budget could affect you and your business, join us at our Budget Update sessions held in partnership with Brown Shipley. The first will be in Manchester on 27th November and in Stockport on 28th November.